China’s growing foothold over the Panama Canal isn’t just fueling its own commercial interests, it also appears to be helping America’s adversaries engage side-step sanctions, court documents obtained by the Daily Caller News Foundation show.
China has expanded its presence considerably in the Panama Canal since former President Jimmy Carter sold the shipping lane to Panama for $1 in 1977, and is funding multi-billion dollar infrastructure projects in the surrounding countryside while buying up ports to solidify its foothold. It’s also been a boon to American adversaries, like Iran.
Panamanian court documents obtained by the DCNF show how Iran appeared to have used proxy firms based in Hong Kong, China, to register ships in the Panama Canal and attempted to reap the benefits of chartering its ships.
“Given the presence of Chinese companies in port operations and infrastructure near the canal, U.S. officials worry that Beijing may seek commercial or strategic leverage in the region,” Dr. Umud Shokri, senior visiting fellow at George Mason University with expertise in foreign policy, told the DCNF. “The Trump administration’s efforts to regain influence over the canal reflect Washington’s broader view of the waterway as a critical national security asset.”
The documents center on various cases involving three Hong Kong-based shipping companies — Grace Shipping, Expander Shipping and Grandest Shipping — all of which have been accused of being subsidiaries of the state-owned Islamic Republic of Iran Shipping Lines (IRISL), a Tehran-based company owned by the Iranian government.
IRISL was sanctioned under the first Trump administration, with the State Department describing the company as the “preferred shipping line for Iranian proliferators and procurement agents.” The EU went into more detail than did the Panamanian courts. The EU Council, charged with overseeing security, defense and diplomacy said that for years, IRISL has been “involved in shipping military related cargo,” while the Islamic Revolutionary Guard Corps Navy (IRGCN) “converts container ships owned by IRISL into drone carriers.”
Iran has clandestinely operated in the Panama Canal for years, as the Latin American country is considered to be the world’s biggest supplier for “flags of convenience,” which allow shippers to register their vessels under Panamanian colors in exchange for a fee to conceal their port of origin, according to Reuters. Panama took away its flag usage privileges from 136 ships alone over their links to Tehran in 2023.
In 2018, the Hong Kong-based companies were looking to sell three separate medium-range tanker ships through an agreement known as a bareboat charter to a Greece-based shipping company. But President Donald Trump announced sanctions on Iran that same year, effectively killing the deal and forcing the Iranian-backed companies to sell the ships outright to avoid penalties.
The Greek company went on to use the ships unimpeded for two years after the 2018 sale. However, in 2020, the Hong Kong companies filed a lawsuit in Panamanian court to reclaim the ships from firms under the Greek company’s management that bought the vessels, alleging that the initial selloffs were invalid.
The Panamanian court ordered the Greek company to return two of the ships to Grandest Shipping and Expander Shipping, respectively, or pay off the multi-million dollar valuation of the ships to the plaintiffs, according to the legal documents. The case involving Grace Shipping has yet to be resolved.
Though the companies now deny their association with IRISL, they have yet to disclose what third parties they were sold to and the nature of the supposed sales. The only people who have appeared as witnesses in the case for the companies are Iranians related to IRISL, according to court documents.
The Hong Kong-based firms are represented by Arias B. & Associates in Panama, court documents show.
The U.S.’s ability to curtail China-based front companies is partly a function of America’s willingness to potentially strain the U.S.-China business relationships, Heinrichs told the DCNF.
“So some of this is just implementing the sanctions, finding the front companies that pop up and not giving China any plausible deniability,” Heinrichs told the DCNF. “All of this is endorsed by and facilitated by the [Chinese Communist Party].”
Iran has long made moves to avoid Western sanctions, especially in its oil trade.
President Donald Trump sanctioned Iranian minister of petroleum Mohsen Paknejad Thursday for allowing “the export of tens of billions of dollars worth of Iranian oil and has allocated billions of dollars’ worth of oil to Iran’s armed forces for export,” according to the Treasury Department. The Iranian government operates so-called “shadow fleets” that export primarily to Beijing.
An entire shadow market for Iranian oil has emerged with China and Russia’s help. Beijing and Moscow have both taken steps to obfuscate the origins of the oil, according to the Atlantic Council.
“I think we need to be very serious about Iran sanctions,” Michael Singh, managing director and Lane-Swig Senior Fellow at The Washington Institute, told the DCNF. “But being serious about Iran sanctions does not mean just listing more entities, listing more boats. I’m a former senior Treasury official. I’m all in favor of doing that. Can you do that without enforcement? It’s meaningless.”
Panama has been more than happy to accommodate China in its expansion of maritime power.
China’s Landbridge Group acquired Panama’s largest Atlantic port, Margarita Island, for $900 million in 2016. The acquisition was in conjunction with Beijing’s “Belt and Road” initiative (BRI), a global infrastructure project that has already made its way into a myriad of developing nations.
The BRI has been criticized for often giving China undue leverage over the target countries with debt, dubbed “debt-trap diplomacy,” according to the Council on Foreign Relations.
Panama formally joined the Belt and Road initiative in 2017.
Moreover, Panama gave a 25-year no-bid renewal to the Hong Kong-based Hutchison Ports to operate two ports on either end of the canal, covering both the Atlantic and Pacific Oceans. However, American investment giant Blackrock agreed to purchase the ports from the China-based firm on March 5 for $22.8 billion.
U.S. officials and congressmen, such as Republican Texas Sen. Ted Cruz and Republican Utah Sen. John Curtis, have levied criticism at the Panama Canal Authority for allegedly not doing enough to enforce sanctions, especially against China. The Panama Canal Authority has vehemently pushed back against the accusations, saying they are “not a haven for sanctions evasion.”
“The United States has found that Iranian vessels are sometimes flagged by Panama in order to avoid sanctions so that they could sell the fuel that they have and then they can take that money and then use it as they wish,” Louis Sola, chairman of the Federal Maritime Commission (FMC), said during a Senate Commerce Committee hearing in January.
Cruz also echoed the sentiment during the Commerce Committee hearing, saying the U.S. could not be “idle” while China grows its foothold.
“China has always been firmly opposed to illegal and unjustifiable unilateral sanctions and so-called long-arm jurisdiction by the US. The international community, including China, has conducted normal cooperation with Iran within the framework of international law,” a Chinese Embassy spokesperson told the DCNF. “This is reasonable and lawful without harm done to any third party, and deserves to be respected and protected.”
“All of this is primarily about control of sea lanes,” Heinrichs told the DCNF. “So it’s critically important, and I credit the Trump administration for recognizing that and for understanding it, that you cannot let the Chinese take over the Panama Canal.”
The Iranian Foreign Ministry and Arias B. & Associates did not respond to the DCNF’s request for comment.
(Featured Image Media Credit: Screen Capture/PBS NewsHour)
All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.
